South Korea introduces cornerstone investor system to stabilize the new share public offering market

The Korean National Assembly approved the revision of the Capital Markets Act on April 23, 2026, allowing for the pre-allocation of a portion of shares to institutional investors who commit not to sell publicly issued stocks within six months after listing and to hold them long-term.

The core of this system is the introduction of the so-called “cornerstone investor” system. Cornerstone investors are institutional investors who acquire a certain share of the offering in advance before the company’s public issuance and commit not to sell the stock for a specified period, demonstrating a long-term investment nature. Previously, in the public issuance market, there were repeated cases where some institutional investors, after receiving large allocations of newly issued shares, cashed out for profit on the listing day. During this process, issues such as overpricing at the time of issuance or sharp declines in stock prices after listing were frequently pointed out.

According to the Financial Services Commission, current regulations restrict inducements or commitments to subscribe before submitting the securities registration statement, thus limiting the existence of long-term institutional investors prior to listing. The revision provides an exception to this rule, allowing lead underwriters to pre-allocate shares to institutions that pledge long-term holding. However, the allocated shares are limited to a portion of the institutional investors’ allocation, not including individual investors’ shares, with individual subscription shares remaining at 25%. This mechanism is designed to reduce potential fairness disputes between individuals and institutions that could arise from the introduction of the system.

The revision also includes measures to make the share price calculation more realistic. From now on, lead underwriters can conduct demand forecasts even before submitting the securities registration statement. Previously, providing corporate information to institutional investors and inquiring about their expected prices or quantities at this stage was suspected of being illegal, as it was seen as failing to adequately reflect actual market demand. Through system improvements, lead underwriters will be able to more accurately reflect investment demand from the initial stage of setting the expected issuance price range, which is expected to help determine the offering price more reasonably.

Financial authorities believe that pre-ensuring institutional investors with medium- to long-term tendencies will help increase investor confidence after listing and reduce cases of so-called “IPO disasters,” where stock prices plummet sharply. Of course, merely implementing the system will not immediately eliminate overheating in the public issuance market. However, the clear policy signal of shifting the culture of the public issuance market from short-term arbitrage to long-term investment may have a significant impact on future issuance price determination processes and the stability of stock prices in the early days of listing. The revision will take effect six months after its announcement.